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When it comes time to settle up a bill, Americans’ preference for debit or credit largely depends on the size of the purchase. That's good news for issuers Citigroup, JPMorgan, and American Express.

Debit and credit cards can be a big business for the companies that issue them. Citigroup(NYSE:C) and JPMorgan Chase(NYSE:JPM), the undisputed leaders by outstanding credit card loans and number of active credit card accounts, would prefer that Americans whip out their credit cards as their default payment method.

According to data from the Federal Reserve, whether we use debit or credit is largely a function of how much we're spending. When we buy something small like a coffee or a candy bar, debit wins out. But when we spend big on purchases such as flights or supplies to build a backyard deck, credit reigns supreme.

Image source: Getty Images.

Why Americans use credit for big purchases

There are completely logical reasons for why we prefer credit for larger purchases. Credit cards aren't just a way to pay, but also a way to finance a purchase, so it only makes sense they get priority over debit cards for the subset of purchases consumers want to finance.

Many of the things that cost the most -- travel, restaurants and entertainment -- are most rewarding to put on credit, thanks to how many rewards programs are designed. JPMorgan encourages credit spend on travel with its travel-focused rewards cards. Citigroup has similar travel rewards cards in its portfolio, but it also gets a big share of large transactions thanks to its special deal with Costco, which put its cards in the hands of Costco's higher-income, higher-spending clientele.

Image source: author; data from the Federal Reserve.

Then there is the issue of fraud protection and charge-backs. Credit cards are safer to use than debit cards if your account information gets in the wrong hands. And most corporate spenders -- American Express's (NYSE:AXP) bread-and-butter business that JPMorgan Chase is increasingly fighting for -- have company credit cards, not debit cards. Strike another win for the credit category in large transactions.

All this is to say that there is a long list of powerful financial incentives that steer consumers toward credit cards for larger purchases. Consumers are simply acting in their best interest by using credit cards for a greater share of the dollar volume of larger transactions.

What's in it for the banks?

Whether you pay by debit or credit really matters to the banking industry, which collects fees on every swipe from cards they issue.

How the payments industry collects its share of fees, and how the proceeds are split between parties, is seemingly purposefully complex. But it is safe to say that most merchants (big-box stores, for example) would almost always prefer debit to credit purchases. Banks that issue the cards want you to pay by credit.

Card-issuing banks simply take a larger cut on credit than on debit transactions. That's because debit card fees the issuing banks can charge are limited by law to just $0.21 plus 0.05% of the transaction. Credit card interchange fees aren't regulated, and thus they tend to include a larger variable percentage component. A standard credit card might come with an interchange fee of 1.5%, while a rewards card might carry an interchange fee of 2.5%, for example.

To be sure, banks don't keep all of the interchange fees on credit cards. These interchange fees are used to pay for cardholder rewards to encourage loyalty. In the second quarter, American Express hauled in $4.8 billion of discount revenue from its cards, paying out about $1.9 billion in cardholder rewards. Citigroup doesn't break out swipe fees and rewards costs, but it does note in its filings that it earned $364 million in total fees from credit cards and bank cards after deducting rewards expenses in the second quarter.

Across the industry, banks generated about $63.4 billion in interest on balances last year. Interchange fees added up to $42.4 billion. For the nation's banks, that means people who use credit cards to make purchases are almost as important as people who use cards to carry balances.

Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool recommends American Express and Costco Wholesale. The Motley Fool has a disclosure policy.

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